By Tim Gorrell, Executive Director, Ohio Tuition Trust Authority
October 30, 2017
Do you wake up in the middle of the night, your mind swirling from a nightmare about future student loan debt for your children? Take the first step to conquer your fear of student loan debt — open a 529 college savings plan. It’s a tax-advantaged saving vehicle, offering many investment options while growing through the power of compound interest.
529 Plan Tax Benefits
Why use 529 plans? These accounts offer tax advantages other savings vehicles don’t have, such as:
- Tax-free earnings. A regular savings account will have taxes assessed but a 529 investment plan grows tax-free at the federal and state level. A 529 plan ensures that every bit of investment growth is yours to use, tax-free.
- Tax-free withdrawals. Funds withdrawn from 529 plans are tax free when used for qualified higher education expenses necessary for enrollment at an eligible education institution. These include tuition, room and board, and computers to name a few.
- State income tax deduction for contributions. Some states offer state income tax deductions or credits for 529 contributions. Check out your state’s plan to see if it offers state tax benefit.
The Gift of Compound Interest
Compound interest is a saving powerhouse as interest on contributions and earnings continually accumulate in the 529 account. By setting aside college savings in a 529 plan early, the account will benefit from compound interest invested over the years.
Compound interest in a college saving plan is a huge advantage; compound interest with student loans is a huge disadvantage. This is why 529 plans are a great alternative to student loan debt, which stands at $1.3 trillion held by 44 million borrowers in America. Saving now is far cheaper than paying off student loan debt later.
529 Plans Can Be Used Nationwide
Saving for college in your state’s 529 plan does not mean your child is limited to only attending schools in that state. 529 plans can be used nationwide (and even overseas) at any accredited two-year, four-year, graduate or professional, or any post-secondary schools that accepts federal financial aid.
To learn more about 529 plans, visit the many resources available at the College Savings Plan Network. You can even compare your state’s 529 college savings program to others. Take the step to conquer your fear of student loan debt. There’s only one thing to be afraid of with 529 plans — not starting one.
About the author: Tim Gorrell is the executive director of Ohio Tuition Trust Authority. For more than 25 years, Ohio Tuition Trust Authority has sponsored and administered CollegeAdvantage, Ohio’s 529 College Savings Program. CollegeAdvantage oversees more than 633,000 accounts and over $10.88 billion in assets. Visit CollegeAdvantage.com or call 1-800-AFFORD-IT (233-6734) for more information.